Biggest loser in Time Warner Cable deal may be you

What mammoth new company would mean for cable bills

Comcast’s offer to buy Time Warner Cable for over $45 billion will create the biggest cable behemoth in the country. Analysts say the deal could also create the biggest cable bills in the country.

Comcast Corp
CMCSA, -2.35%
, the No. 1 U.S. cable operator by subscribers, and Time Warner Cable
US:TWC
, No. 2 by subscribers, announced the deal on Thursday. If approved, Time Warner shareholders will own 23% of Comcast’s stock, at a value of $158.82 per share.

“This transaction will create a mammoth cable company,” says Michael Hodel, analyst at Morningstar. Comcast and TWC networks pass a combined 84 million homes, or 70% of the U.S. population, he says. In terms of fixed-line network reach, only AT&T would come close, covering an estimated 50 million homes. But Comcast CEO Brian Roberts played down any anti-competitive impact for consumers. In a conference call, he said, “We believe that this transaction is approvable. It is pro-consumer, procompetitive and strongly in the public interest. It will not reduce competition in any relevant market because our companies do not overlap or compete with each other.”

Bloomberg

Despite Roberts’ statement, “the transaction is sure to draw plenty of regulatory and political scrutiny, given the massive influence Comcast will have over both television distribution and Internet access,” Hodel says.

The combined company would have even more clout with content providers in terms of what channels it chooses to carry and how much it pays to carry programs, says Dan Rayburn, a principal analyst with business consulting firm Frost & Sullivan. “Fewer choices in the market are a bad thing for consumers, when it comes to Internet, pay TV and wireless services available,” he says. Last year, Time Warner Cable instituted a blackout of CBS Corp’s
CBS, -1.25%
flagship network in New York, Los Angeles and other markets in a month-long dispute over programming costs.

Lower programming costs could help consumers—in theory. As cable prices have gone up, so have programming costs, according to SNL Kagan. Programming costs rose 6.5% in 2012, 4.7% in 2011 and 5.3% in 2010 for Comcast, Time Warner Cable and Charter
CHTR, -1.85%
. Some analysts projected a 10% increase for 2013, says William Rinehart, director of technology and innovation policy at the American Action Forum, a center-right policy institute. “Video distributors of all stripes—cable, satellite, and telecommunication companies—continue to warn investors that programming costs are rising,” he says.

But few analysts believe that the rise in cable bills year after year will slow down anytime soon. “I can’t imagine things will get better,” says technology analyst Jeff Kagan. The average cable bill has doubled over the last decade to approximately $90 a month and will reach $200 in 2020, estimates market researcher The NPD Group. And the Federal Trade Commission estimates that the monthly cable bill for basic broadcast networks is around $62 for the most basic package, which doesn’t include any premium cable stations like HBO, AMC or Showtime, premium sports channels or the Internet.

Cable companies are feeling the sharp end of cord-cutting and so are making consumers pay more for Internet-only service, Rayburn says. Time Warner Cable lost about 215,000 TV subscribers in the fourth quarter of 2013 from the previous quarter; however, it added about 55,000 high-speed data subscribers and about 15,000 phone subscribers. Comcast Corp. ended a more than six-year streak of TV subscriber losses and added 43,000 such customers in the fourth quarter.

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